Today the NBA announced two important sets of changes for the 2011-12 season: one impacting on-court play, and one impacting off-court business matters. Both developments are positive, in my view.
The CBA
The new Collective Bargaining Agreement contains tweaks to numerous league protocols. Notably, the new CBA allows a player to renegotiate an existing contract for lower annual money but more years, if the annual salary reduction is no more than 40%. This provision would allow, say, Amare Stoudemire and Carmelo Anthony to take a bit less money in 2012-13 and beyond in order to create more salary-cap room for the Knicks to sign Chris Paul or another top free agent. [Reports Thursday indicate that the Knicks intend to sign Tyson Chandler to a large long-term contract that would cover 2012-13 and beyond. The contracts of those three guys would eat up most of the $58 MM salary cap. Theoretically, all three of Chandler, Stoudemire, and Anthony could agree to reduce their salaries sufficiently to make room for Paul at a large number; perhaps each of them could earn $13 MM annually, say.]
The new deal also sets the minimum team salary at (after a couple years of transition) 90 percent of the salary cap, rather than 75 percent. This provision will help further the goal of competitive balance; cheap owners such as Donald Sterling or Glen Taylor will be forced to hire at least a few middling (as opposed to terrible or very young) players to fill out their roster.
The contentious minimum age for draftees was not changed, but apparently punted to be decided by a future union-league committee. I have previously advocated in this space for the age limit to be raised to two years post-college.
GAME RULE CHANGES
The previously over-generous shooting fouls granted in "rip-through" or "and-one" situations, wherein the shooter was clearly not in a shooting motion before the foul, will be curtailed. Travelling rules will be enforced more strictly (LeBron James's "crab dribble", which we reviewed in this post in 2009, will no longer be legal) and timeouts will be made to conform to the billed 20-second or 60-second lengths. Here at JPO, we have long criticized inconsistent rule enforcement, and this news begets great happification in our hearts.
Thursday, December 8, 2011
More Changes In The Association This Season
Friday, July 9, 2010
The Max is Too Much
Top free agents want to get the full amount they are entitled to. Based on a formula in Article II, Section 7(a) of the Collective Bargaining Agreement, eighth-year players are entitled to a maximum salary of a bit over $17 million per year. To the extent that more than one team can create cap room to sign such a player, and the marginal revenue boost from signing a superstar is well in excess of his salary, a semi-competitive market will inevitably result in these contracts being signed.
Meanwhile, the NBA salary cap is about $58 MM for 2010-11, up very slightly from 2009-10. A team with no players under contract could afford to sign, at most, three maximum-salary players in one free-agency period. As it turned out, only Miami could do this in July 2010. A couple teams (New York, New Jersey, Chicago) had enough room, or close to it, for two maximum-salary players. But given the ceiling (which becomes an effective floor) on superstar salaries, most teams in the league had no shot at signing a Wade or James, or even a Boozer. Your typical star wants to play where other stars are playing, so two simultaneous signings seems to be required if you want just one.
There is an obvious coordination problem here: top players would behoove themselves to accept lower than the maximum allowed salary, in order to leave more salary-cap room (or if that is impossible, simply to be kind to the owner's wallet so he will be generous with Bird-exception-type or MLE-type signings) to sign good supporting teammates. But though some (like LeBron James, Dwyane Wade, and Chris Bosh in today's free agent machinations, or Kobe Bryant in 2004) speak of accepting less money for the good of the team, it rarely happens. James, Wade, and Bosh will, by accounts, get close to the max salary; why else would Miami trade a very good young player, Michael Beasley, for virtually nothing? Theory holds that wealth has diminishing marginal utility past a certain level of luxury, but athletes don't hesitate to demand their full allotment.
Obviously this system encourages building young talent through the draft, and retaining said talent, rather than cobbling together a monster through free-agent acquisitions. There are no Yankees in the NBA. But I favor either increasing the salary cap somewhat or reducing the maximum salary, to make it easier for more teams to get access to the "open" market for good players. Following a team is no fun if, like the Knicks, they are locked out of the free-agency market for years and, when finally they are allowed to deal in such market, they are structurally disadvantaged because some other team has more "max" slots.
Thursday, April 8, 2010
Flash, Superman, and Latifah?
Several months ago my co-blogger Dr. Doughboy detailed some of his favorite NBA movies. Continuing this theme, the forthcoming Hollywood movie Just Wright, which will debut in May of this year, features rapper Common, playing a NBA star, choosing between two love interests, played by Queen Latifah and Paula Patton. Personally, I found the trailer rather captivating, not least because it portrays the player as having some semblance of maturity, able to engage in a grown-up relationship. Popular portrayals of NBA athletes generally (and not necessarily accurately) show the typical player as a backwoods brute with plenty of hops but little charm. Another mark in the favor of this flick is its depiction of Queen Latifah (née Dana Owens), who, true to her name, carries herself regally though she does not resemble a usual Hollywood "babe" or an archetypal NBA wife, as a legitimate love interest for the jock.
(I found the title somewhat lame, though, but that is a minor quibble. Titles based on punning an invented character name are way overdone. Good Will Hunting? House of Payne? Saving Grace? Yuck.)
Here is what really inspired me to flee from more quotidian tasks to my bloggin' refuge. I note from the trailer that the new Latifah movie features, at the least, Dwyane Wade and Dwight Howard in cameos. (The IMDB cast listing also reports Elton Brand and Rashard Lewis playing themselves.) How is every NBA movie able to secure so much participation from real pro hoopers? For example, Forget Paris (1995), which only tangentially depicted the NBA in its opening scenes, featured a host of stars including most of the mid-'90s Suns (Barkley, Majerle, KJ). The following year's Eddie (1996), a fairly forgettable movie starring Whoopi Goldberg as a rags-to-riches NBA coach, also featured NBA players, albeit B-listers such as Malik Sealy, Greg Ostertag, and Dwayne Schintzius. Films including Blue Chips (1994) and He Got Game (1998) included NBA players in serious starring roles: Shaquille O'Neal, Anfernee Hardaway, and Ray Allen all portrayed high school seniors choosing where to matriculate. The children's movie Like Mike (2002) packed seats by showing Allen Iverson, Jason Kidd, Tracy McGrady, Steve Nash, and a host of others doing their thing on the court.
(Even the odious Juwanna Mann (2002) featured cameos from WNBA stars Cynthia Cooper and Teresa Weatherspoon, but the less said about that movie, the better.)
So again, how do these NBA movies consistently score league talent for cameos (or more)? One possibility is that the director/producer of each movie happens to, idiosyncratically, have a connection to the NBA world that he exploits to recruit talent. Perhaps a director without an NBAer stored in his mobile phone would not even bother to make a hoops movie.
Alternatively, we must consider that making an NBA-themed movie requires obtaining the NBA's consent, lest the Association seek injunctive or monetary relief for infringement of its trademarks. In other words, the league gets an effective veto power over which pro hoops movies get made; they are likely somewhat circumspect in their choices of which film projects to grant IP licenses to. (How the heck did the NBA/WNBA approve Juwana Mann, then?) All NBA intellectual property is housed with NBA Properties, Inc., a corporation chartered in New York state. Most of the above movies include a special thanks to the National Basketball Association in their ending credits. With this bargaining power over would-be hoops auteurs, the league likely can insist on including any particular lineup of players in the movie.
The smoking gun is Article XXXVII, Section 2 of the Collective Bargaining Agreement, which allows NBA Properties to require a player to make up to four appearances annually for licensing purposes. I would not be surprised if this covers cameos in movies. Interestingly, players shall be paid $2,500 for each such appearance, but can be fined up to $20,000 for failure to comply. Additionally, Article II, Section 8 also allows teams to require players to make up to 12 promotional appearances annually, of which 2 may be assigned to NBA Properties. Pursuant to Section 8(a)(i)(A), a player may be required to make only one off-season appearance, and it must be in his town of residence or in the location where he happens to be. (Presumably, in practice, players are more pliant than to reflexively refuse a non-conforming request, but the CBA protections are probably useful for players.)
I am not privy to the convoluted negotiations between the league, movie directors, and players recruited to appear in such cinematic gold. However, if you wonder why Dwight Howard and D-Wade are in the newest Latifah movie, it is likely because Commissioner Stern (or Deputy Commissioner Silver) wanted it that way.
Saturday, February 20, 2010
On CBA Negotiations
NBA "superagent" David Falk made two useful observations in this recent New York Times article.
First, he stated that NBA owners have a "much more reduced financial ability to withstand" a work stoppage than NBA players do. At first glance, this makes sense: NBA owners own other highly profitable businesses and have other sources of cash-flow, plus plenty of wealth in the bank. Most NBA players are not gainfully employed outside of their NBA commitments. Sure, the top stars endorse commercial products such as insurance, shoes, and fast food, but most players don't have such opportunities. If they are prudent, they have invested their wealth in a mix of liquid and illiquid investments that produce a regular dividend stream, but sadly, not all players are so responsible with their money.
I suppose the surprising part of Falk's comment is the modifying word "much" in front of "more". If I earned 1 million after-tax dollars in just one year of my life, I would find a way to put that money to work so I could, for the most part, retire from the rat race forever. And the average NBA player salary is $5 million!
Second, Falk suggests that in the next Collective Bargaining Agreement, owners' revenue, for purposes of calculating a player salary cap, should include "China, franchise appreciation, broadcast rights, luxury seating".
Let us take a look at the current definition of Basketball-Related Income ("BRI") from Article VII, Section 1 of the Collective Bargaining Agreement:
However, the following is excluded from the definition of BRI, among other things:
Falk has a point. It may be that owners are collectively losing money under the current regime, and the players' share of "Basketball-Related Income", as embodied in each team's salary cap, needs to be reduced. However, why are certain revenue streams, such as government subsidies, excluded from BRI? And why is only 50% of arena naming rights fees, rather than the whole hog, included in the BRI calculation? The more players have a stake in revenue streams, the more they (or their union, acting collectively as their agent) will have an incentive to take actions that grow the pie, such as charitable appearances, government lobbying, corporate motivational talks, and so forth. To the extent that Falk correctly identified revenue streams that are not currently completely included in the BRI definition (for example, he mentioned "luxury seating", but luxury suite fees are already 100% included in BRI), I agree completely with Falk.
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UPDATE February 26th: As for Falk's suggestion that players should share in franchise appreciation, the first paragraph from reader "Dan Palmer" in this SI.com article quite captures my view.
More generally, franchise appreciation in sports is an odd duck. For most businesses, the enterprise value is based on some capitalized sum of future profit streams. Yet sports owners may want the asset for personal or emotional reasons. Who wouldn't want to own the Chicago Cubs? This non-"rational" demand, resulting in each potential bidder having his own idiosyncratic valuation for the business, makes a sports team far more like a house than a commercial office building.
Monday, January 11, 2010
Seems Like The Movies
Gilbert Arenas's recent legal problems have thrown light upon Section 16(a)(i) of the standard NBA player contract:
The Team may terminate this Contract [...] if the Player shall: [...] at any time, fail, refuse, or neglect to conform his personal conduct to standards of good citizenship, good moral character (defined here to mean not engaging in acts of moral turpitude, whether or not such acts would constitute a crime), and good sportsmanship, to keep himself in first class physical condition, or to obey the Team’s training rules.
Several pundits have suggested that the Wizards should void Arenas's contract under this "moral turpitude" clause. To my knowledge, no NBA team has ever attempted to invoke that clause, and it has never been litigated, either within the NBA's private appeals process, or in a real court. Unfortunately, "moral turpitude" is not defined further in the contract; nor is "first class physical condition". If Arenas were to be convicted of a felony, that might qualify as "moral turpitude" in the eyes of a judge or jury, but really, who knows? Construing an ambiguous contractual (or constitutional or statutory) clause is tricky business, especially when the document provides no helpful context.
Why didn't the NBA or the Players Association insist on defining the meaning of "moral turpitude" further, during the last negotiation in 2005? If they agreed on some negotiated set of taboo behaviors (murder, rape, spitting on the flag), however outlandish, it is likely that a player would eventually breach one of those covenants. Heck, NBA alum Jayson Williams killed a man just a couple years after retirement. Perhaps the NBA doesn't really want to the power to void contracts; owners would rather not wield such a veiled threat, lest players push for even more money so they can bathe in such a risky pond. And it's clear why the Players Association would rather keep this clause fuzzy. Status-quo bias has likely preserved the clause over a number of years.
[As a side note, it feels a bit surprising to contemplate that a real court could in fact pronounce on what the "moral turpitude" clause in NBA contracts actually means. I think that often, individuals living in an all-encompassing community (a university, the military, a pro sports team) tend to forget that ultimately they and their patron are subject to public laws, just like every other citizen and organization. The private entity may purport to lay down its own law and order, but ultimately, we are all part of one community. The only entity that US courts have consistently refused to regulate, oddly, is the legislature.]
Thursday, February 19, 2009
One For You, Nineteen For Me
It makes little sense to say that the Pistons dumped Alex Acker so they could get under (or close to) the luxury-tax line per se. Rather, one could say that given the Pistons’ aggregate salary position above the tax line, Joe Dumars noticed that, among other available roster shuffling options, by cashiering Acker they could save twice his annual salary of $711,517, or $1,423,034. Presumably if the Pistons were only $1 above the luxury tax line, they would have been less keen to jettison Acker to save $711,517 (his total salary, plus $1 in tax). And if, say, Acker’s annual salary were $20 and the Pistons were $5 above the luxury tax line, it is hard to imagine their dumping Acker just to save $25. There is some value to carrying a third point guard. And there is a nonzero probability that basketball value translates into economic value: if Acker is able to fill in during a couple games when Rodney Stuckey is injured, say, and he helps the team win a couple games and improve playoff position, his presence could be responsible for millions of dollars of extra revenue from playoff home games.
Perhaps we could say that owners are chary of paying luxury tax because they do not want to help competitor teams. But the orders of magnitude here are tiny: by dumping Acker, the Pistons avoided paying out $711,517 / 23 , or about $30,936, of luxury tax to each team (the dollar-for-dollar tax penalty is divided equally among all non-tax-paying teams). It is hard to imagine this making much of a difference to any individual owner’s P&L statement. Besides, a lump-sum cash transfer should not affect the recipient teams’ marginal decision-making regarding rosters: presumably, the acquisition or dumping of players should hinge on whether their contract value is justified by the attendant extra revenues, regardless of the team’s existing profit-or-loss level. Perhaps tax considerations (and here we mean real government tax, not NBA ‘tax’) might influence an owner’s decision-making if his distributions from the team corporate entity suddenly increase. Additionally, risk-averse owners might be slightly more willing to take on the gamble of a new player contract when they perceive they are pulling in more cash flow from the team. But again, thirty thousand dollars should hardly make much difference, so it is hard to see why Joe Dumars would think in such a way.
I have been assuming here that general managers act as pure profit-maximizers on behalf of their owners. But in some cases, owners place (the perceived chance of) winning above profits, such as when Knicks owner James Dolan signed off on Isiah Thomas’s rash acquisitions of Steve Francis, Jalen Rose, Jamal Crawford, and the like. Other rich or overzealous owners like Mark Cuban or Paul Allen may act similarly. If this is the case, then all bets are off: tax-paying teams would be less likely to worry about the tax, and also less likely to worry about transferring cash to other teams.
To be sure, irrational economic behavior is not rare: both corporate and individual decision-makers often fixate on avoiding thresholds that are better seen as arbitrary points on a continuum of financial positioning. For example, grandmothers from the Great Depression are likely to caution, “Don’t take on debt. Pay off your loans.” Well, if you can borrow at interest rates lower than the rates of return you are likely to earn from investing that money, then you certainly should keep your loans, or borrow more. Heck, Merrill Lynch carried a leverage ratio of 28:1 at the end of 2007. A leverage ratio of 1:1, or less, is one (extreme) point along a continuum of possible outcomes, but hardly the only logical one. Similarly, there’s little use in fixating on one rule, “Don’t go above the luxury tax line”, if that constrains you from making prudent investments. Other economic actors use crude heuristics, rather than careful analysis, to make decisions. It may be that, given how the luxury tax line has been constructed under the Collective Bargaining Agreement [i.e. the tax line is set at (i) 61% of average team revenues, minus (ii) average team benefits for players, including pension, 401(k), medical, and life insurance], breaching that line is a useful signal that a team is probably paying too much, given the typical magnitude of other team costs such as leases, administration, marketing, and other overhead.
So okay, it’s possible that team owners and management, crippled by bounded rationality, are anchoring on the luxury tax line as a fulcrum of decision-making. But still, most team owners have acquired their wealth through outsized success in other businesses, so they know how to run a business; it is unlikely that they would be distracted so. There is little evidence that they are in fact making decisions as NBA reporters suppose they are. (Sadly, team revenues and profits are not publicly reported, and so we cannot correlate profitability against player salary outlays.)
What about the scribes who write about the NBA: why do they so blithely accept the salary tax number as some kind of Demilitarized Zone, not to be breached? One writer said that “owners treat the luxury tax threshold the way Dracula treats sunrise” . Well, to put it nicely, most NBA reporters probably got started as college sports reporters and worked their way up; though constant learning is ostensibly part of their job, they are not necessarily policy wonks. It is they who are more likely the boundedly rational ones, stuck in a conceptual scheme that makes no sense.
Friday, January 9, 2009
Twelve Angry Men
Here is the basic regulatory background of this situation. Under Article VII, Section 5 of the current NBA Collective Bargaining Agreement, a team may (subject to various exceptions and complications) sign a free agent from another team only if such free agent’s prospective salary would not cause the team to exceed the salary cap calculated for a given season.
Under Article VII, Section 4(h) of the Collective Bargaining Agreement, if a player is deemed by a physician selected jointly by the NBA and the Players Association to have suffered a career-ending injury, then the team can apply to have such player’s salary excluded from its salary-cap calculation. But, if the player ends up playing 10 games the following season, then the exclusion is void, and the player’s salary goes back into the salary-cap calculation. Let us note that the player is still entitled to get his money nonetheless. In this case, Miles’s contract was covered by insurance, so Blazers owner Paul Allen saved cash payment on Miles’s $9 million for 2008-09.
The January 8th email from Blazers President Larry Miller said the following:
Team Presidents and General Managers,
The Portland Trail Blazers are aware that certain teams may be contemplating signing Darius Miles to a contract for the purpose of adversely impacting the Portland Trail Blazers Salary Cap and tax positions. Such conduct from a team would violate its fiduciary duty as an NBA joint venturer. In addition, persons or entities involved in such conduct may be individually liable to the Portland Trail
Blazers for tortuously interfering with the Portland Trail Blazers' contract rights and perspective economic opportunities.
Please be aware that if a team engages in such conduct, the Portland Trail Blazers will take all necessary steps to safeguard its rights, including, without limitation, litigation.
Reportedly, after the Blazers’ intemperate missive, Cavaliers owner Dan Gilbert responded to the NBA owners’ group email list (side note: Can I be blind-carbon-copied on this list?) with the following rejoinder: “A pre-emptive threat of 'litigation' directed at all of your partners through a group e-mail does not sit well with me and seems to be incongruent with the spirit of keeping a 'fiduciary duty' and good 'partner-like duty' to your 'NBA joint venturers.'” That’s a fair point, but Gilbert, who like most businessmen surely disdains lawyers, had little to say about what Portland could actually do to him. Putting the warm fuzzies aside, what is really going on here?
As John Hollinger has explained, signing Miles and paying him for a couple games is an individually rational decision for any given team. Under current projections, about 7 teams (including the Blazers, if Miles plays ten games) will exceed the salary cap in 2008-09 and will be required to pay luxury tax, (see Article VII, Section 12(f) of the Collective Bargaining Agreement) which is split equally among all the 23 non-tax-paying teams. At the veteran’s minimum of $1,141,838 annually for an 8-year veteran, Miles would earn roughly $28,000 for two games. Any team that plays Miles in a way that triggers the Blazers’ luxury-tax liability will receive its 1/23 share of the Blazers’ luxury-tax payment, which would be about $9 million (the amount of Miles’s salary), as right now Portland’s calculated salary roll is just slightly below the cap line. Earning $391,000 of tax transfer for a $23,000 investment seems like a pretty good ROI – better than upgrading your luxury boxes!
Given that the Blazers are threatening some legal action against any team that challenges Portland, it might be useful to consider the strength of their legal claims. First is their claim of tortious interference. According to the Restatement (2d.) of Torts, Sections 766 and 767, the tort of “tortious interference with a contract” consists of (1) a contractual relationship, or an expectancy thereof, (2) an intentional act of interference with such relationship or expectancy, (3) causation of harm, and (4) quantifiable damages. The first problem is that Portland has no more contractual relationship with Miles. They severed ties with him early in 2008 when the doctor opined that he was not fit to play ball any longer; and insurance is now paying the contract for Portland. Even if the payments are coming over time rather than in a lump sum and there is still some outstanding contractual arrangement governing the payments, it is hard to see how a team that signs Miles now would be interfering with such arrangement. They wouldn’t. The issue of the salary-cap implications for Portland is separate from the actual cash payment of Miles’s salary. Could Portland argue that a team that signs Miles is interfering with Portland’s prospective contractual relationships, i.e. a free-agent deal with Shawn Marion, say? Perhaps, but the possibility thereof seems so sketchy and ill-defined as to make a legal claim very weak indeed.
The other potential claim is some sort of alleged violation of a team’s fiduciary duty to its partners. I do not have access to the partnership agreement that NBA team owners are party to, but it seems ridiculous to argue that part of each team’s fiduciary duty is not to take all permissible actions to compete with other teams. Furthermore, as a practical matter, how could the Blazers ever prove that a particular team, say the Grizzlies, signed Miles purely to trigger the Blazers’ luxury-tax liability and salary-cap exceedance? It's not clear how a good-faith signing would look different from a bad-faith signing. In fact, the worse the team is (and Memphis sure is bad), the more plausible it is that they could really use Miles. Boston's signing of Miles seems more likely to be a bad-faith move.
If the Blazers ever sued the Grizzlies for these alleged torts, the judge should rule for the Grizzlies on summary judgment. But can you imagine one NBA team taking the other to court? Really? I sure can’t. Without that background threat, any threat of a lawsuit is toothless.
In essence, Portland is saying with their letter that they don’t want Miles to ever make a living in the NBA again. I don’t believe he ever asked anyone for a medical opinion that his knee was finished. He wanted to keep playing! It is well-known that judges do not fondly regard attempts by an employer to prevent a former employee from finding work elsewhere.
The psychology at play with Blazers management is worth comment, as well. They may genuinely feel that Miles and other teams are attempting to screw them in bad faith. This reminds me of a situation I recently experienced where a colleague, whom I know somewhat vaguely, asked me to take care of her cat in my home for a year while she embarks on a trip around the world. I said, sure, I would love to, but the problem is that I’m already taking care of another friend’s three cats for several months, and I’m not sure if the existing three cats will be gone by the time you embark on your trip. Eventually, a few weeks before her trip, I told the world-traveller that I can’t do it because my existing three cats don’t seem to be leaving anytime soon. And instead of saying, OK, I understand, that’s too bad, she contacted the owner of my three cats to find out if she can expedite the departure of the three! Rather than taking the presence or absence of the three cats as an autonomous external parameter that is out of her domain and control, she took it as a bit of a personal affront. I suppose I would feel a sense of loss too in her situation: a liability that you thought you had eliminated is suddenly back on the books for what feels like a bad reason. Given that losses generally hurt worse than the equivalent gains, it would have been better for Portland to never get rid of the salary-cap liability in the first place, rather than having the liability, then enjoying the windfall of ditching it, then getting socked with it again. But ultimately, Portland should bear some moral responsibility for signing Miles to such a rich contract, just as this cat owner is responsible for deciding to leave the country for a year.
I read somewhere that perhaps Portland’s letter can be read as an implicit threat not of a lawsuit, but of future blackballing by Portland of any team, say Boston or Memphis, that chooses to sign Miles. The problem is that this is clearly a non-credible threat; Kevin Pritchard will surely not hesitate to swing a deal for, say, Rudy Gay if the price is right.
In sum, I would say that Portland’s leadership team is full of it. They need better lawyers and better psychologists to help them through this disappointment.
